June 30, 2026
WHEN: Today, Tuesday, June 30, 2026
WHERE: CNBC’s “Squawk on the Street”
Following is the unofficial transcript of a CNBC interview with Bank of England Governor Andrew Bailey on CNBC’s “Squawk on the Street” (M-F, 9AM-12PM ET) today, Tuesday, June 30. Following are links to video on CNBC.com: https://www.cnbc.com/video/2026/06/30/bank-of-england-governor-andrew-bailey-would-have-been-at-inflation-target-if-not-for-iran-war.html and https://www.cnbc.com/video/2026/06/30/watch-cnbcs-full-interview-with-bank-of-england-governor-andrew-bailey.html/.
All references must be sourced to CNBC.
SARA EISEN: Hi. Good to see you again, Carl. And, Governor Bailey, thank you for joining me ahead of our big panel tomorrow.
ANDREW BAILEY: Yes, good to be here.
EISEN: Yes, good to be in windy Sintra.
BAILEY: Yes.
EISEN: So, central bankers like you are facing a bit of a dilemma right now, which is, inflation is uncomfortably above target, and yet a lot of it is driven by this oil price spike.
BAILEY: Yes. Yes.
EISEN: Why are you comfortable leaving rates where they are right now, given the higher inflation?
BAILEY: Well, first of all, I mean, it is frustrating. I really believe, and, actually, I believe even more now I have seen the sort of the day trade the last couple of months, that we would have been back at our 2.0 target around about April, May time. So the fact that we aren't is hugely frustrating. So—
EISEN: Is it all because of the war?
BAILEY: I think so, yes. And we have had obviously something of an increase. So, inflation in the U.K. is at 2.8 at the moment. I expect it will go a bit higher than that because we have this sort of lagged response with the household energy price cap mechanism. So, at the moment, I think we think it could go up to 3.2, somewhere like that. That will be quite a bit later this year, though, because of the lag in the adjustment.
EISEN: So should you get, raise rates to get ahead of it?
BAILEY: So, well, that's interesting. So I would say, first of all, we're looking obviously, at obviously how long, how we have got a sort of lasting settlement now. Is it going to be stable? How much damage is—
EISEN: Who knows, right?
BAILEY: Yes, it's highly uncertain. How much damage has been done to the supply infrastructure, and then the question is what are the indirect effects in terms of how it's going to pass through to things like food prices? And then what are the second round effects in terms of how much, is it going to get embedded in the economy now? At the moment, first of all, it's coming in lower than we thought it would, which is obviously encouraging. I'm encouraged by that. We have obviously had quite a fall in energy prices over the last couple of weeks particularly or so. So, energy, I mean, oil and gas prices are now, they're still a bit above where they were before it started, but not much now. So that's important. Secondly, we have got quite a soft economy in the U.K., so we have seen quite a softening of activity. We think there's a small output gap opening up, and the labor market's quite soft. So that's the context for judging second round effects. The third thing I'd say is that the markets were expecting us to cut this year. The markets were expecting a couple of cuts this year. And I'd said a number of times I didn't think that was unreasonable. So, back in March, we really had to take that off the table, which we did. So, you can sort of think of that as a tightening in its own—
EISEN: You tightened because you didn't cut.
BAILEY: Yes. And, I mean, the best example of that is the mortgage rate. I mean, the two- and five-mortgage rate went up about 1 percent. Now, it's come off a bit since then, but it's still 60, 70 basis points above where it was before this started. So, yes, probably, we're in a bit of a different place. We have had some tightening built into the curve, which I think gives us some time then to sort of judge the pass-through.
EISEN: Although you did have two dissents at the last meeting.
BAILEY: Yes. Yes. Yes.
EISEN: And your chief economist speaking this week sounded very hawkish and warned about getting complacent.
BAILEY: Yes. Yes. Well, we're not complacent. I think, look, it's perfectly reasonable to, I always say, look, it's very reasonable for people to take different views. I mean, one of the strengths of our committee, as you will observe, is that we do have quite different views are expressed, and that's good. I welcome that, actually. So Huw does take a different view on that, Huw Pill. And he's quite, he's quite justified to take that position. Of course we're concerned. I, we're not complacent at all. I'm in a somewhat different position. I think it's frustrating, but I do think that we're operating against a softer economy at the moment. So I think, looking forwards, at the moment, I would say I think that the evidence would suggest that we will come back to target, but frustratingly later than we thought we would.
EISEN: It's going to take longer.
BAILEY: It's going to take longer, yes.
EISEN: Are you, so, are you saying you're more worried about the economy than higher inflation at the moment?
BAILEY: Well, we have got a softening economy, and that is an issue, clearly. Look, I'm not happy about the fact that inflation is above target at all. But, yes, we do have to judge it in context and looking forwards. And we do have in our remit what we call trade-off language, because this is a, this is a negative supply shock. So you have got higher inflation and, yes, weaker activity. And the language of the remit explicitly says to us we should make a judgment on what's the right course back. We have got to bring it back to target. What's the right course back?
EISEN: So, as far as the economy, why is it, why has it been weak? IMF, I think, has an even lower projected growth this year than Europe.
BAILEY: Well, I think we have had a number of things. First of all, I mean, we have had lower growth and slower growth now for a period of 15 years, actually. So, the potential growth rate has been about 1 percent lower for 15 years now. It's about 1.5 percent, whereas it was 2.5 percent before the crisis. So, I think that's, a lot of that is structural.
EISEN: But your policy has been accommodated.
BAILEY: Yes.
EISEN: The stock market's at a record high.
BAILEY: Yes. So we have had, I would say, look, I think two things. We have had weaker household consumption. We have actually had a higher saving rate. The saving rate has been, is higher than it was pre-COVID. It wasn't surprising that it went up during COVID. It hasn't reverted to the pre-COVID level. Now, I always have to add the caveat that we were worried before COVID about how low it was. So put that into context. But, obviously, that higher saving rate has an impact on household consumption. Relative to real income, consumption has been lower.
EISEN: You're not spending like Americans.
BAILEY: No, although the U.S. is a different, obviously a different context in that sense. So we have had a lower household consumption. Investment's been a, it's been a bit of a mixed story. It's been somewhat up and down, but I think, again, there is a react, greater uncertainty in the world economy does tend to cause firms to think about delaying, postponing investment decisions.
EISEN: What about A.I.? I mean, U.K. has attracted a lot of investment and innovation around and build-out around A.I.
BAILEY: Yes. Yes.
EISEN: Is that having an impact on the economy at this point?
BAILEY: Well, I think we're still in the early stages. I think that, if you go back to the question, so where's the growth going to come from, I think that A.I., I think, first of all, technology is the major driver of growth in these types of situations. I think it's quite possible that this lower rate of growth for the last 15 years is a sort of, it's, we're in a sort of pause in a sort of cycle of technology development. We sort of, we went through the Internet, yes, and that made a big contribution to growth, and then we have had a pause. You have had those in history. So, if you ask me, well, where's the next one coming from, it's a combination of A.I., A.I. robotics, related technology. Now, here, again, if you look at history, they tend to take longer to come through into the sort of macroeconomic numbers, the productivity numbers than people sort of think they would, because, and we're the same in the Bank of England. We're doing a lot with A.I., but a lot of it at the moment is what I might call sort of experimenting, and there's not, and, sometimes, it does take sort of subsequent innovations to sort of make it fully usable. I mean, we have had some very exciting discussions at the Sintra conference about where it's going to. And I think it is the future in that sense.
EISEN: One of your colleagues on the Bank of England wants to see more regulation to, around A.I., specifically around risk to financial stability, which is the Central Bank—
BAILEY: Yes. Well—
EISEN: Is that something we could see out of the U.K.?
BAILEY: So, well -- well, I mean, first of all, this is the big issue at the moment is frontier A.I. and cyber risk. I mean, yes, this really blew up when we were all in Washington for the IMF-World Bank spring meetings.
EISEN: Yes.
BAILEY: I mean, and I have to be honest with you. I was, yes, when we first got through, and I was talking to Secretary Bessent about this. I mean, he was very on to it. And this is one of these moments when you think, this is big. This is suddenly bringing forward something we have been talking about, more in the context of where quantum computing might take a turn a few years' time. These models can suddenly do more, I think more than the developers thought they could do. And that has, that has really advanced the, sort of the cyber risk. Now, we're all having to go through this process of, how can we get sort of what I call managed access to these models? We're working very closely with the big banks in, all the banks in the U.K. to make sure they have got as much access as we can get. I hope we can get more settled sort of situation with the U.S., because I think that would help a lot, because the, this is a, this is an integrated world system. We have got to be together on this, so that we can test them and then do all the patching—
EISEN: Yes.
BAILEY: We have to do, because, as our head of I.T. has said to me at the Bank of England, said to me, this is a ton of patching.
EISEN: Yes, it's a lot of patching—
BAILEY: Yes.
EISEN: And a lot, a lot to be learned. Look, I know you don't want to comment on politics, Governor Bailey, but I do want to mention the situation at home—
BAILEY: Yes.
EISEN: Which is you're approaching now your seventh prime minister in the last 10 years.
BAILEY: Yes.
EISEN: Is there an economic impact of that kind of policy and leadership uncertainty? And why is it happening?
BAILEY: Well, first of all, I don't comment on politics.
EISEN: I know.
BAILEY: I think it's very important that the Labor Party particularly will, will sort this issue out, and I'm sure it will be resolved quite quickly. And I look forward to working with the, with people. It'll be my fifth prime minister. So—
EISEN: It feels like a lot of instability. Do you think it's related to Brexit?
BAILEY: I think, well, I think we have had, we have had big economic shocks of one sort of another. I don't think it's entirely about economics. I think it's easy for people like me to think the world revolves around economics. I think, there are a number of issues, I think, in the U.K. But I think this question, this question of having slower growth is important. I think we have, we at the Bank of England, but also in the fiscal policy world, can create what I call the stability. And that's very important, because we won't get growth unless we have stability. But then we do need to sort of tackle the what drives long-run growth issue and bring it forward. So it is an important issue. It's not the only issue, but it's an important one.
EISEN: Well, we certainly appreciate you taking the time to talk here in Sintra.
BAILEY: In windy Sintra.
EISEN: In windy Sintra, always.
BAILEY: Yes. You're very welcome.
EISEN: Thank you very much, Andrew Bailey, the governor of the Bank of England who will be joining me tomorrow, Carl, on our panel with the Fed chairman, of course, with the governor of the Bank of Canada, and with our host, the president of the European Central Bank, Christine Lagarde.
For more information contact:
Stephanie Hirlemann
CNBC
